Factors Affecting the Yield of Indonesia Government Bonds 10 Years

Abstract

The purpose of this research is to analyze the effect of inflation, interest rates, the rupiah exchange rate, and the US 10-Year Treasury on the Indonesian Government Bond Yield. The study population was all yield tenors of the benchmark series Government bonds for the period 2017 to 2019. This study is an associative causality study. The research sample is Indonesian government bonds with a tenor of 10 years. Data were analyzed using multiple linear regression approach. The results show that inflation and US 10-Year Treasury have no effect on the Indonesian Government Bond Yield. Interest rates and the rupiah exchange rate have a positive and significant effect on the Indonesian Government Bond Yield.

Determining Factors for 10-Year Local Currency Sovereign Bonds Yield With Dynamic Regression Model

“…Miyajima et al (2015) suggest crucial effect of the exchange rate on the yield in emerging economies, while Gadanecz et al (2018) who use exchange rate volatility and expected exchange rate as predictor variables also confirm the significant relationship. These two studies are in line with a work by Permanasari & Kurniasih (2021) who study the effect on Indonesia's bonds yield, suggesting a significant positive-relationship between the exchange rate and the yield. A slight different conclusion is provided by Saenong et al (2020) who argue that the effect on the Indonesia's bonds yield only significant in the short run but find to be insignificant in the long run.…”

“…Muktiyanto & Aulia (2019) whose focus of study is on Indonesia's sovereign bonds gives more emphasize on the predictor variable suggesting that the UST yield is not only significant but also has the biggest role in determining the LCB yield of the country. On the contrary, Permanasari & Kurniasih (2021) who also study the same country suggest that the UST yield has no significant effect in determining the LCB yield. Furthermore, findings from Kim & Lee (2014) and Muktiyanto & Aulia (2019) explain that our second predictor, the CDS, is a significant factor that affecting the yield.…”

“…Moreover, some works highlight the effect of exchange rate on the bonds yield (Miyajima et al, 2015), (Gadanecz et al, 2018), (Saenong et al, 2020) and (Permanasari & Kurniasih, 2021). Miyajima et al (2015) suggest crucial effect of the exchange rate on the yield in emerging economies, while Gadanecz et al (2018) who use exchange rate volatility and expected exchange rate as predictor variables also confirm the significant relationship.…”

“…Moreover, the 10y-yield is said to reflect outlook of long-term economic development and its movement is commonly used as a sign for predicting country's Jurnal BPPK Volume 15 Nomor 1, 2022 economic health as explained by Permanasari & Kurniasih (2021), although for having an overview on general economic condition other types of rate indicators are still be considered (Fiskal, 2021).…”

“…First, it offers an alternative to existing econometrics models utilized for analyzing factors that affect the Indonesia's 10y-LCB yield. The model in this study is incorporating a linear regression model that commonly used in many existing studies on the topic such as; Kurniasih & Restika (2015), Muktiyanto & Aulia (2019) and Permanasari & Kurniasih (2021), with an ARIMA model to enhance the regression while still maintain its simplicity form.…”